Singapore Equity Trading Plummets on Penny-Stock Curbs

By Jonathan Burgos -
Dec 2, 2013

The value of equities traded on
Singapore Exchange Ltd. (SGX) sunk to a two-year low last month,
threatening to slow the bourse’s earnings growth, as brokerages
restricted investments in so-called penny stocks after three
commodity companies plunged.

The average value of shares transacted daily on Southeast
Asia’s biggest exchange fell to S$914 million ($728 million) in
November from S$1.3 billion a year earlier, according to data
compiled by Bloomberg. That’s the lowest since December 2011.
Trading sank 36 percent in the past two months after a slump in
Asiasons Capital Ltd., Blumont Group Ltd. and LionGold (LIGO) Corp.
erased $6.9 billion in market value over three days in early
October, the data show.

Singapore’s brokerages are making it harder for clients to
invest in dozens of stocks even after SGX removed restrictions
on trading Blumont (BLUM), LionGold and Asiasons shares. The nation’s
securities regulator is investigating the plunge and all three
companies have said they don’t know what precipitated the
decline. Interactive Brokers Group Inc. (IBKR) and AmFraser Securities
Pte., a unit of Malaysian lender AMMB Holdings Bhd., face
combined potential losses of $105.8 million from providing
margin loans to affected investors, the brokerages said in
separate announcements.

“The trading curbs were done to protect brokers’
interests,” Jimmy Ho, president of the Society of Remisiers in
Singapore, said by telephone. “However, imposing such
restrictions is killing the market. The measures look overdone
and SGX should intervene.”

‘Prudent Intervention’

SGX suspended trading on the three stocks on Oct. 4 then
declared them “designated securities” on Oct. 6, meaning
investors were prohibited from selling unless they held the same
quantity of stock and buyers had to pay in cash. The exchange
removed its curbs from Oct. 21, saying trading had become more
stable.

UOB-Kay Hian Holdings Ltd. (UOBK), Singapore’s largest brokerage
with about 800 brokers, has 53 stocks in its restricted trading
list, including Asiasons, Blumont and LionGold, according to a
document obtained by Bloomberg. Shares on the list cannot be
traded online and upfront cash payments are required for
transactions above S$30,000, according to UOB-Kay Hian. Lim &
Tan Securities Pte. has restrictions on 58 stocks, while Maybank
Kim Eng Securities has 26 stocks on its list, documents show.
The FTSE Straits Times Fledgling Index of Singapore’s smallest
listed stocks by market value has 319 members.

“Investor sentiment in Singapore was severely affected by
the collapse of the penny-stock bubble in October,” UOB-Kay
Hian said when it reported its third-quarter results on Nov. 12.
“While our timely and prudent intervention averted significant
bad-debt losses, we expect lower trading volume and hence
brokerage income in the next quarter or two.”

Soar, Plunge

Stock trading remains the biggest source of income for
Singapore Exchange and the slump will curb earnings for the
bourse, according to Macquarie Group Ltd. and Phillip Securities
Pte. SGX shares slid 0.1 percent to S$7.22 at the close in
Singapore.

Blumont, which invests in minerals and energy, had soared
more than 1,000 percent this year through the end of September
to lead gains on the FTSE Straits Times All-Share Index,
prompting the SGX to investigate the surge. The shares plunged
from an all-time closing high of S$2.45 on Sept. 30 to 10.7
Singapore cents today.

Asiasons, the second-best performer on the index, slumped
95 percent from its record close of S$2.83 on Oct. 1 to 13.3
Singapore cents today. LionGold, which said in September it was
in talks to buy as many as three gold mining assets, tumbled 90
percent from its S$1.725 peak on Aug. 29 to 17.6 Singapore cents
today.

Significant Trading

Investors traded about S$1.5 billion of the three
companies’ stock in the month to Oct. 3, the day before the
shares began to tumble, according to data compiled by Bloomberg.
That’s more than the S$1.3 billion of trading in DBS Group
Holdings Ltd., the heaviest-weighted stock on the Singapore
broad-market gauge, the data show.

Blumont, LionGold and Asiasons (ACAP) were ranked 30th, 46th and
48th respectively by weighting in the FTSE Straits Times All-Share Index on Oct. 3, making up a combined 1.6 percent of the
measure.

Trading of the three companies’ shares were suspended by
the Singapore bourse on Oct. 4 to “safeguard the interests of
the markets as there could be circumstances that would result in
the market not being fully informed,” according to a statement
from the SGX at the time.

‘Confidence Affected’

“Market confidence was affected,” said Ken Ang, an
analyst at Phillip Securities. “Some of the retail investors
may have been hit by the recent penny-stock saga, and they may
be slightly more apprehensive about re-entering the market at
this moment.”

SGX is expected to report a 7.3 percent increase in net
income to S$360.4 million in the year ending June 2014,
according to the average estimate of 14 analysts compiled by
Bloomberg. That compares with 15 percent growth in the previous
year. Bourse spokeswoman Loh Wei Ling didn’t respond to an e-mailed request for comment.

“It’s a big deal when the value of stock trading falls,”
said Matthew Smith, an analyst at Macquarie in Kuala Lumpur.
“That’s the primary bread and butter for SGX still.”

An increase in derivatives trading will help the exchange
offset the slump in stock transactions, Smith said.

The equities business accounted for 67 percent of SGX’s
revenue in the year ended June 30, 2013, while derivatives made
up the rest, according to data compiled by Bloomberg. The
Southeast Asian bourse has been seeking to revive equity trading
volume, while at the same time promoting index, currency,
commodity and fixed-income products.

SGX Shares

SGX shares declined 56 percent from a record high of
S$16.40 in October 2007 as the average value of shares traded on
the exchange sank to S$1.4 billion this year from S$2.4 billion
in 2007, according to data compiled by Bloomberg.

While the decline in trading volume is a concern, the
Singapore bourse isn’t inclined to ask brokers to relax their
self-imposed trading restrictions, SGX president Muthukrishnan Ramaswami said.

“Brokers are in the best place to manage their credit
extension to their clients and we don’t interfere in this,”
Ramaswami said on the sidelines of a conference in Singapore on
Nov. 20. “Our brokers are well capitalized and financially
strong.”

Regulators around the world stepped up oversight of capital
markets after the global financial crisis in 2008 and have
evaluated safeguards since the May 2010 plunge, known as the
flash crash, briefly erased about $862 billion from the value of
U.S. equities. The Monetary Authority of Singapore said on Oct.
25 it is reviewing the trading of Blumont, Asiasons and LionGold
shares.

Thorough Review

The Monetary Authority has said it and SGX will conduct a
thorough review of broader market structure and practices.

Blumont had a market capitalization of $416 million at the
end of 2012, according to data compiled by Bloomberg. The value
of its shares peaked at more than $5 billion on Sept. 30, before
crashing to $228 million on Nov. 29. Asiasons’ market value of
$108 million on Nov. 29 compares with a peak of $2.2 billion on
Oct. 1, while LionGold’s declined to $136 million from as much
as $1.25 billion in August.

“Investors have suffered losses and have become somewhat
more risk-averse,” said Liu Jinshu, an analyst at Voyage
Research Pte. “To some extent, liquidity has been withdrawn
from the market.”